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Crude Oil: How Long Will the Supply and Demand Imbalances Last?

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Aug. 5 2015, Published 8:35 a.m. ET

Crude oil’s supply

Russia produced 10.65 MMbpd (million barrels per day) of crude oil in July 2015—compared to 10.71 MMbpd in June 2015—according to sources from the Russian Energy Ministry. Russia is the largest crude oil producer. The fall in the crude oil output was due to the fall in condensate production.

Likewise, the US weekly crude oil output fell slightly by 145,000 bpd (barrels per day) to 9.413 MMbpd (million barrels per day) for the week ending July 24, 2015, according to EIA (U.S. Energy Information Administration) sources. OPEC’s (Organization of the Petroleum Exporting Countries) crude oil production fell marginally to 32.107 MMbpd in July 2015—compared to 32.469 MMbpd in June 2015—according to Bloomberg data. The slight fall in output was due to the fall in output from Iraq.

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OPEC’s largest crude oil exporter is Saudi Arabia. It produced 10.6 MMbpd of crude oil in July 2015. OPEC’s second largest producer is Iraq. Iraq’s crude oil output fell by 194,000 bpd to 4.194 MMbpd in July 2015—compared to June 2015. Iran maintained its crude oil output at 2.85 MMbpd in July 2015. Despite the marginal fall in production, the US, Russia, OPEC, Saudi Arabia, Iraq, and Iran are producing at record levels. The consensus of rising production from these countries will continue to negatively impact crude oil prices.

Crude oil demand

China’s crude oil imports rose in June by 31% to 7.18 MMbpd—compared to May 2015—according to data from the Chinese General Administration of Customs. Chinese imports hit a 19-month low in May 2015. The Chinese demand was coming from the newly built inventories. It benefited from lower crude oil. It isn’t the usual economic growth-driven demand.

Four-week US imports were at 7.165 MMbpd for the week ending July 3, 2015, according to EIA sources. The refinery demand was driving US crude oil imports. The US and China are the top two crude oil importers.

Japan’s crude oil imports fell by 2.50% in June 2015—compared to last year. In contrast, South Korea’s crude oil imports rose by 12.60% in July 2015 from 91.6 MMbbls (million barrels) in 2014, according to preliminary data from the Ministry of Trade in South Korea.

The consensus of slowing demand from China, the US, Japan, and Europe will continue to negatively impact crude oil prices in the short term and long term. This could widen the gap between supply and demand.

The collateral damage in crude oil prices impacts oil producers like Apache (APA), Marathon Petroleum (MRO), and Hess (HES). They account for 13.40% of the Select Sector SPDR Fund ETF (XLE).

The uncertainty in the oil market also impacts energy ETFs like the Select Sector SPDR Fund ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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